Quadratic Spline Models for Producer's Supply and Demand Functions

In this paper, the authors propose and estimate a system of producer output supply and input demand functions that generalizes the standard normalized quadratic form. The generalization adds either linear or quadratic splines in a time (or technical change) variable, yet retains the main attractive property of the normalized quadratic, which is that it can provide a local second order approximation while maintaining the correct curvature globally. However, the generalization has additional desirable approximation properties with respect to the splined variable and, thus, permits a more flexible treatment of technical change than is provided by standard flexible functional forms.